There is growing interest in how human observers perceive social scenes containing multiple people. Interpersonal distance is a critical feature when appraising these scenes; proxemic cues are used by observers to infer whether two people are interacting, the nature of their relationship, and the valence of their current interaction. Presently, however, remarkably little is known about how interpersonal distance is encoded within the human visual system. Here we show that the perception of interpersonal distance is distorted by the Müller-Lyer illusion. Participants perceived the distance between two target points to be compressed or expanded depending on whether face pairs were positioned inside or outside the to-be-judged interval. This illusory bias was found to be unaffected by manipulations of face direction. These findings aid our understanding of how human observers perceive interpersonal distance and may inform theoretical accounts of the Müller-Lyer illusion.